Chinese auto industry hopes to cash in on patriotism

ByShai Oster Special to The Christian Science MonitorDecember 20, 2000

SHENYANG, LIAONING PROVINCE
— To the strains of the Maoist anthem "The East is Red," China on Saturday unveiled the latest weapon in the war for the world's fastest growing automobile market.

"Today is a day of great rejoicing, as our dream has come true - the first modern sedan car which the Chinese people have developed independently," said Yang Rong, chairman of the board of Brilliance China Automotive Holding, the company which invested $500 million in car design and construction of the plant.

The makers of the new Zhonghua four-door sedan, a company listed on the New York and Hong Kong stock exchanges but indirectly owned by the government, are hoping to cash in on the patriotism of the burgeoning middle class.

But the Zhonghua - which means China - is less a symbol of national ingenuity than an emblem of the weakness of China's domestic industries. Fifty years of central planning and trade barriers have kept out foreign competitors. Coddled by the state, China's domestic companies have lagged behind and will have a hard time competing with the better technology of multinationals, once trade barriers are sharply lowered with China's entry to the World Trade Organization. Car tariffs will drop from 80-100 percent to 25 percent.

Despite the huge Chinese flag, the People's Liberation Army band, and patriotic speeches at the Zhonghua's debut, relatively little about the car is Chinese. The design is Italian, the engine Japanese, and the suspension and electronics German. Forty percent of the components are imported.

The nationalist hoopla is more a marketing ploy to feed the state-controlled media, which is full of screeds against foreign firms. Company officials admitted they're less concerned with national pride than personal profit.

Potentially, there's a lot of money to be made. The plant is capable of annually producing 150,000 units of the Zhonghua, a smart-looking, aerodynamically shaped car priced between $18,000 and $30,000.

There are only about 4 million passenger cars on the road in China right now, but ARA, an automotive industry research company, projects the market will grow 6 percent every year until 2005. By then, Chinese will be buying 900,000 cars a year, they say, with most purchases coming from the swelling ranks of families earning more than $6,000 a year. There are only about 3 million such households now, but their numbers are expected to grow as China's economy liberalizes and cities likes Beijing and Shanghai prosper.

"China's the most important market in the world," says Philip Murtaugh, head of General Motors Corp.'s China operations. "It's the fastest- growing market, and someday it will be the biggest market. Someday could mean 20 or 30 years from now."

GM, which has invested $2 billion in China, is the biggest but not the only foreign automaker here. In fact, every passenger car now made in China is a foreign joint venture. Volkswagen makes both Santanas and Jettas. Mazda Motor Corp. plans to make a minivan starting next June, Toyota Motor Corp. won approval for its factory in May, and Suzuki, Isuzu, Citroen, and Honda all have plants. Ford Motor Corp. has been seeking approval to build a plant in China.

But a history of quality problems in domestic cars has left a bad taste in the mouths of Chinese consumers. Quality issues have made buyers wary even of joint-venture cars like Volkswagen's Santana, because they're perceived as Chinese-made, and of lower quality than imports.

As if to underscore the point, at the end of the ceremony, several Brilliance China officials were seen leaving in a Cadillac.